DTE Energy Targets Over 80% Cut in Carbon Emissions by 2050

In a historic initiative to transform itself into a full-fledged renewable energy provider, electric supplier DTE Energy CompanyDTE recently announced its plan to get rid of all its coal-fired units by 2040 and gradually reduce its carbon emissions by more than 80% by 2050 (compared to 2005 levels).

This drastic decision seems to have been taken by the company to comply with the Clean Power Plan, introduced by the Obama administration in 2014, which aims at reducing carbon emission by 32% in the U.S. by 2030.

Details of the Plan

Through this long-term initiative, DTE Energy expects to see a 30% reduction in its carbon emissions by the early 2020s, 45% by 2030, 75% by 2040 and finally more than 80% by 2050. To successfully achieve this, the energy provider plans to transition its 24/7 power sources from coal to natural gas and continue to operate its zero-emission Fermi 2 power plant, which will thereby incorporate substantially more renewable energy. Going forward, management believes this strategy to strengthen options for customers to save energy and reduce bills.

DTE Energy’s plan also includes construction of an additional 6,000 megawatts (MW) of renewable-energy capacity that will supply energy to nearly 2 million homes, thereby amplifying the 1,000 MW of renewable energy that the company has built since 2009.

This project also incorporates addition of 3,500 MW of natural gas-fired energy capacity for supplying 24/7 power, apart from its earlier-announced plan ofshutting down 11 coal units by the early 2020s.

DTE Energy will also invest $5 billion to modernize the electric grid and gas infrastructure over the next five years. Per management, this huge investment will create job opportunities for almost 10,000 Michigan citizens.

Notably, this entire initiative reflects a long-term shift by the company that will enable it to produce over three-quarters of its power from renewable energy and highly efficient natural gas-fired power plants.

Our View

Due to declining costs of solar and wind energy producing technologies and the trend to curb energy production from fossil fuel gaining traction more and more these days, the global renewable energy market has been seeing enhanced growth in the past couple of years. No doubt, announcing the aforementioned plan, DTE Energy has made a firm position for itself in this ever-expanding market.

Moreover, this news came forward at a crucial time, given the U.S.’s recent slip to the third position in the latest EY (Ernst &Young) Renewable energy country attractiveness index (RECAI). Notably, the new U.S. Government's decision to roll back many of the past administration's climate change policies, reviving the U.S. coal industry and trying to repeal the U.S. Clean Power Plan acted as key headwinds that dragged the nation on renewable investment attractiveness.

We believe that the sumptuous investment DTE Energy has promised to make in the renewable energy space might uplift the nation on the RECAI. However, we will like to remain on the sidelines in relation to the fate of this project as a whole, due to concern over the executive order that President Trump signed on Mar 28, 2017 to review the Clean Power Plan.

Considering the fact that Trump has been calling the climate change a “Chinese Hoax” and has long been in favor of reviving the coal industry, it remains a matter of question as to whether his newly made policies, if approved, will let energy providers like DTE Energy to wholly shift to renewable resources. If he succeeds in repealing the Clean Power Plan, the entire investment plan of DTE Energy will go down the drain, causing a loss for the company, considering it has alreadyspent more than $2 billion in wind and solar resources since 2009.

Price Performance

DTE Energy’s share price gained 17.5% in the last one year, outperforming the Zacks Categorized Utility-Electric power industry’s 1.3% gain. This might have been driven by the fact that apart from its utility operation, DTE Energy continues to make progress on its non-utility business, which provides diversity to its earnings stream. Moreover, DTE Energy provides intense competition to other utilities in the market like CenterPoint Energy, Inc. CNP, Alliant Energy Corporation LNT and Consolidated Edison Inc. ED.

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